According to the World Resources Institute, demand for clean water in the emerging markets of the world is projected to grow by 50% over the next 15 years, and analysts estimate that water demand in India alone will double over the next 20 years. Demand in the developed markets is projected to grow 15% by 2027. Another research report cites that water demand in China will grow 63% by 2030. Finally, analysts at Pike Research believe that cumulative investment in new desalination plants will reach $87.8 billion from 2010 to 2016.

ERI’s Financials
Although projections for the industry may be favorable, the current recession and the credit crunch continue to affect plant build-outs. Energy Recovery, (Nasdaq:ERII) a provider of pressure exchangers (PXs) for the desalination industry, saw Q1 revenues dropped a massive 54% over the year to $4.76 million. Despite the cost-saving measures put in place, losses continued to deepen. The company reported a net loss of $0.09 per share compared with net loss of $0.03 a year ago.

Year to date, the company has bought back 1.2 million shares for $2.6 million.

ERII is hopeful of ending the current year with revenue growth of 40% over the previous year as work on mega projects begins from the current quarter.

ERI’s International Expansion
ERI continues to expand its geographical footprint in the emerging markets. Within the Middle East, it announced the recent win of a large-scale desalination plant in the United Arab Emirates. The plant is expected to produce a daily capacity of 68,000 cubic meters, or 18 million gallons. Last quarter, ERI also won a contract with the Egyptian Armed Forces to supply their PX exchangers for the largest desalination plant in Egypt. The plant, located in Marsa Matrouh, close to Libya, will be built with a capacity of 24,000 cubic meters or 5.5 million gallons per day.

China is also a fast-growing market for water desalination plants. According to the economic planning agency the National Development and Reform Commission (NDRC), China’s planners have laid out a target to triple the country’s desalination capacity by 2015 to more than two million cubic meters, or 528 billion gallons of water per day. Recently, ERI won a contract for a power plant in Shandong Province, China. The plant is projected to have daily production capacity of 16,000 cubic meters, or two million gallons of water supply. The China market is expected to become a major revenue generator for ERI over the next three years.

In addition, ERI is diversifying into the oil & gas segment. Although they are best known for their water PXs, they are now also expanding market awareness and footprint within gas processing solutions. ERI now offers tools that help gas plants improve output efficiency by more than 75% and call for a lower investment in terms of both capital and operating expenses. The oil & gas segment revenues have not started to kick in yet, but ERI expects this revenue channel to offer a significant growth and risk diversification against financial market gyrations and credit issues as experienced recently.

ERI’s stock is trading at $2.11, with a market capitalization of $110.37 million. It was at a 52-week high of $3.50 in October 2011. The long term still looks very promising with ERI even though it has been a very difficult stock to remain patient with.